Canadian pension funds bullish on U.S. commercial real estate

Last year Canada’s pension funds and institutional investors became active as joint venture partners and owners of property in major money-center cities, including Manhattan, Washington D.C., Chicago, Los Angeles and Boston.

Last spring, the Canadian Retirement Investment Fund, Oxford Properties Group, announced that it will partner with the Related Companies to develop the 26-acre Hudson Yards. Oxford acquired a 50 percent interest in Hudson Yards, investing alongside New York-based Related Companies in the 12 million-square-foot, mixed-use development. Related and Oxford will act as the general partners for the project.

As a co-developer of the site, Oxford is actively involved in development, leasing and fund-raising activities, and upon completion is expected to participate in its operation.

Oxford Properties is one of Canada’s largest real estate companies and a wholly owned subsidiary of the Ontario Municipal Employees Retirement Systems. OMERs will provide up to $475 million in equity.

Last month, Oxford announced that it will invest $4 billion in the next five years in the United States and England. The plan would see the real estate company buy retail and office space in New York, Boston and Washington, develop new towers in London and join the ranks of companies buying the distressed debt of buildings it would like to own.

Meanwhile, the Canada Pension Plan Investment Board joined the ranks of owners of Class A office buildings with major purchases made during 2010. Last May, CPPIB announced its first foray into Manhattan with the acquisition of ownership stakes in two prime commercial office properties.

CPPIB acquired a 45 percent ownership interest in the Class A, McGraw Hill Building at 1221 Sixth Avenue from SL Green Realty for approximately $576 million including debt and working capital. The office tower original developer Rockefeller Group retained the remaining 55 percent ownership interest in the building.

In addition, CPPIB formed a formed a joint venture with SL Green to acquire a 45 percent ownership stake in the 300,000-squar-foot office building at 600 Lexington Avenue, for approximately $87 million.

In October, CPPIB and Vornado Realty Trust announced a joint venture in which CPPIB acquired a 45 common ownership interest in two prime office properties in Washington. D.C. owned by Vornado. These transactions represented CPPIB first real estate investment in the Central Business District of Washington, D.C.

In addition to office buildings, CPPIB plans to own retail shopping centers throughout the United States. Last April, CPPIB formed a joint venture with Long Island-based Kimco Realty to acquire prime neighborhood shopping centers throughout the U.S. The initial investments were in five retail centers located in cities including Hollywood, Fla. CPPIB acquired a 45 percent interest in the venture and Kimco retained a 55 percent interest in addition to acting as the operating partner.

CPPIB current real estate partners from the U.S. include AvalonBay Communities, the Blackstone Group, Brookfield Properties, Kimco, Morgan Stanley Real Estate Funds, the Rockefeller Group, SL Green Realty and TIAA-CREF Asset Management.

In December, an investment group led by RXR Realty closed on the purchase of the office tower at 1330 Sixth Avenue. The joint venture paid $400 million to Otera Capital, a Canadian lender that foreclosed on the property in 2009. RXR’s joint venture partner was the Public Sector Pension Investment Board, which has been active in New York City real estate since 2000.

Another active investor in New York City is a Toronto-based private equity Group, Onex Real Estate Partners. In 2005, Onex invested $92 million in the Sky View Parc mixed-use development in Flushing, Queens.

Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.